ACCT326 ch15 flashcard #1

Front

Finance leases are agreements that are formulated outwardly as leases, but which in reality are essentially similar to installment purchases.

Back

True

Front

From the perspective of the lessee, leases may be classified as either: Finance or operating.

Back

Finance or operating.

Front

From the perspective of the lessor, two possible lease classifications are: Operating or sales-type.

Back

Operating or sales-type.

Front

What type of lease is Minnetonka Company leasing an asset with the following details?
Fair value of the asset: $400,000.
Useful life of the asset: 6 years with no salvage value.
Lease term is 5 years.
Annual lease payments are $60,000.
Implicit interest rate: 11%.
Minnetonka can purchase the asset at the end of the lease period for $50,000.

Back

Finance

Front

The five criteria provided in GAAP for distinguishing a finance lease from an operating lease do not include which of the following?

- The agreement specifies that ownership transfers at the end of the lease term.

- The collectibility of the lease payments must be reasonably predictable.

- The agreement grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

- The noncancelable lease term is for the major part of the remaining economic life of the underlying asset.

Back

The collectibility of the lease payments must be reasonably predictable.

Front

One of the five criteria for a finance lease specifies that the lease term be equal to or greater than:

Back

the major part of the remaining economic life of the leased property.

Front

One of the five criteria for a finance lease specifies that the present value of the lease payments be equal to or greater than:

Back

substantially all of the fair value of the asset.

Front

For the lessee to account for a lease as a finance lease, the lease must meet:

Back

Any one of the five criteria specified by GAAP regarding accounting for leases.

Front

In a finance lease, the amortization of the right-of-use asset in the third year is:

Back

the same as in the fourth year.

Front

In a ten-year finance lease agreement, the portion of the periodic lease payment that represents interest in the third year is:

Back

more than in the fourth year.